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Massif Capital, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 15.8% was recorded by the fund for the Q4 of 2020, above its MSCI ACWI benchmark that returned 14.68%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.
Massif Capital, in their Q4 2020 Investor Letter said that they constructed a collar in their position in Turquoise Hill Resources Ltd. (NYSE: TRQ), selling call options for 2022 at a $20 strike and using the proceeds to buy January 2022 puts on the position at a $7 strike. Turquoise Hill Resources Ltd. is an international mining company that currently has a $2.1 billion market cap. For the past 3 months, TRQ delivered a decent 35.79% return and settled at $10.70 per share at the closing of January 27th.
Here is what Massif Capital has to say about Turquoise Hill Resources Ltd. in their investor letter:
"Turquoise Hill remains a challenging company to evaluate and a problematic company to manage within our portfolio. The company holds rights to a world-class asset, but one with very different characteristics than Ivanhoe’s Kamoa Kakula. Kamoa is a flat, low depth, high-grade block of copper ore that is relatively easy to mine. Turquoise Hill’s OT mine is a deep underground mine with good grades and high tonnage, but it is very challenging to monetize. The planned extraction method, block cave mining, is still a relatively new approach to mining an asset in the grand scheme of things. The scale of the OT mine exacerbates the challenge. Management challenges compound technical risks. Rio-Tinto (the mine operator and developer via a 51% stake in Turquoise Hill) and Turquoise Hill seem to always be at odds with each other, and both parties seem to always be at odds with the Mongolian Government.
Although we have spent significant time underwriting the technical, managerial, and political risks associated with the investment, we are continuously surprised by how frequently issues occur for this company. With that in mind, we constructed a collar on the position during the fourth quarter, selling call options for January 2022 at a $20 strike and using the proceeds to buy January 2022 puts on the position at a $7 strike. This will allow us to confidently hold the position in the near term, knowing we have locked in a gain of at least 50% from our purchase price while still allowing for significant potential price appreciation from the current $12 price."
Copyright: tomas1111 / 123RF Stock Photo
Last December 2020, we published an article telling that Turquoise Hill Resources Ltd. (NYSE: TRQ) was in 9 hedge fund portfolios. Its all time high statistics is 23. TRQ delivered a 67.76% return in the past 12 months.
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Video: Top 5 Stocks Among Hedge Funds
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